PsycoCeramic Screrices, Inc. (PSI) is a large producer of large cracked pots and other cracked items....
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PsycoCeramic Screrices, Inc. (PSI) is a large producer of large cracked pots and other cracked items. The firm is considering the instailation of a new manufacturing line that will, it is hoped, allow more precise quality control on the size, shape and location of cracks in ts pols as wall as vases designed to hold artificial flowers. The plant engineering department has submitted a project proposal that estimates the following investment requirements: an initial investment -of$125 000o be paid up-front to the Pocketa-Pocketa machine corporation and additional investment of $100,000 to install the machines (at the end of Year 1) and another $90,000 to add new material handling systems and integrate the new equipment into the overall production systems and integrate new equipment into the overall production system (end of Year 2). Delivery and installation is estimated to take one year and integrating the entire system should require an additional year. Thereafter, the engineers predict that scheduled machine overhauls will require further expenditures of about $15,000 every second year, beginning the fourth year after installation is completed. They will not. however overhaul the machinery in the last year of its life. The project schedule calls for the line to begin production in the third year. Project manufacturing cost savings and added profits resulting from higher quality are estimated to be $50.000 in the first year of production and are expected to peak at $120.000 in the second year of operation, end theri to foilow the gradually declining pattern shown in the table below: Time Horizon Increase Profits Year! Year 2 Year 3 50,000 Year 4 120,000 Year 5 115,000 Year 6 105,000 Year 7 97,000 Year 8 90,000 Year 9 82,000 Year 10 100,000 Project life is expected to be 10 years from the project inception, at which time the proposed system will be obsolete and will have to be repiaced, if is estimated that the machinery has a salvage value of $35,000. The interest rate is expected to be 3% for the entire period of time (al 10 years) What is the Net Present Value (NPV) and the Internal Rate of Return (IRR) of this project? Part 2 (Learning Cure Analysis) A manufacturer of diesel locomotives needs 50,000 hours to produce the first unit. Based on past experiernce with similar products. you know that the rate of learning is 80 percent. Estimate the direct labor required for the 40th diesel locomotive and the cumulative average number of isbor hours per unit for the first 40 units. PsycoCeramic Screrices, Inc. (PSI) is a large producer of large cracked pots and other cracked items. The firm is considering the instailation of a new manufacturing line that will, it is hoped, allow more precise quality control on the size, shape and location of cracks in ts pols as wall as vases designed to hold artificial flowers. The plant engineering department has submitted a project proposal that estimates the following investment requirements: an initial investment -of$125 000o be paid up-front to the Pocketa-Pocketa machine corporation and additional investment of $100,000 to install the machines (at the end of Year 1) and another $90,000 to add new material handling systems and integrate the new equipment into the overall production systems and integrate new equipment into the overall production system (end of Year 2). Delivery and installation is estimated to take one year and integrating the entire system should require an additional year. Thereafter, the engineers predict that scheduled machine overhauls will require further expenditures of about $15,000 every second year, beginning the fourth year after installation is completed. They will not. however overhaul the machinery in the last year of its life. The project schedule calls for the line to begin production in the third year. Project manufacturing cost savings and added profits resulting from higher quality are estimated to be $50.000 in the first year of production and are expected to peak at $120.000 in the second year of operation, end theri to foilow the gradually declining pattern shown in the table below: Time Horizon Increase Profits Year! Year 2 Year 3 50,000 Year 4 120,000 Year 5 115,000 Year 6 105,000 Year 7 97,000 Year 8 90,000 Year 9 82,000 Year 10 100,000 Project life is expected to be 10 years from the project inception, at which time the proposed system will be obsolete and will have to be repiaced, if is estimated that the machinery has a salvage value of $35,000. The interest rate is expected to be 3% for the entire period of time (al 10 years) What is the Net Present Value (NPV) and the Internal Rate of Return (IRR) of this project? Part 2 (Learning Cure Analysis) A manufacturer of diesel locomotives needs 50,000 hours to produce the first unit. Based on past experiernce with similar products. you know that the rate of learning is 80 percent. Estimate the direct labor required for the 40th diesel locomotive and the cumulative average number of isbor hours per unit for the first 40 units.
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Answer rating: 100% (QA)
Solution a year cash flow Discount factor at 3 PV 0 125000 100000 12500000 1 100000 097087 9708738 2 ... View the full answer
Related Book For
Managerial accounting
ISBN: 9780073526706
12th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Posted Date:
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